Commercial childcare is hitting a brick wall. Who will pick up the pieces?

Detailed summary

Australia’s largest childcare provider has signalled its intent to surrender to a lowball private equity bid as other for-profit providers collapse in record numbers.

At first blush it looked like great news for investors in Australia’s largest listed childcare provider.

G8 Education shares more than doubled within hours on Thursday after the group revealed its warm welcome of a potential private equity offer at a 260 per cent premium to its record-low share price.

Like most of the kids in G8’s care, the suitor – Majority Capital Partners – is a newborn with little experience of the sector. It was set up just this year by Vidhur Rangaswamy, a veteran of John Wylie, and backed by rock-star investors like Will Vicars.

The 26¢ a share indicative cash offer, subject to further due diligence, contrasts with shares that had dropped from 70¢ at the start of the year to a low of 10¢ before the offer was revealed. Last year the stock was worth as much as $1.40.

That was before G8 revealed the scale of the challenges it faces with occupancy levels plunging, leading to the suspension of 40 underperforming centres that are not expected to reopen.

G8’s fortunes reflect a market landscape rocked by falling fertility rates, rising costs, and rising standards of care demanded by customers following the sex abuse scandals, which have hit commercial operators particularly hard.

Just weeks ago, Shared Beginnings childcare collapsed after its owners, ASX-listed private lender Finexia, called in administrators.

Finexia got lumbered with the centres last year, thanks to its role as a lender to Genius childcare when it collapsed.

Genius and its boss, Gold Coast entrepreneur Darren Misquitta, got lumbered with many of these centres in 2023, when G8 Education paid it $26.5 million to take 31 struggling centres off its hands.

Opening of the article, excerpted from The Sydney Morning Herald. To read the rest, open the article on the publisher's site.